New settlement rights due to be announced could open the door to 36,000 Gorkhas who served in the British Army before 1997, the Times reported.
However, it said Nepal is understood to be concerned that the loss of so many citizens and their British army pensions could leave a huge hole in its economy.
The British policy U-turn would follow a court ruling last year ordering the government to review its policy on whether Gorkhas who had served before 1997 could live in Britain.
The newspaper quoted unnamed officials as saying that the coming decision has such far-reaching consequences that ‘concerns have been raised about the continuing recruitment of Gorkhas from Nepal‘.
Defence officials have warned the new policy might prompt Nepal to scrap a 1947 tripartite agreement between India, Nepal and Britain, under which Gorkhas are recruited each year.
The Nepali economy has relied on income coming into the country from Gorkhas serving with the British Army.
However, the Times said, the British defence ministry denied reports that it wanted to disband the Brigade of Gorkhas because of costs involved in paying out bigger pensions to Gorkhas if granted settlement rights.
Meanwhile, Prince Charles, the heir to the British throne, paid a visit Wednesday to the families of Nepali Gorkha soldiers whose relatives are away fighting the Taliban in Afghanistan.
Around 650 Gorkhas are currently in Afghanistan.
The battalion lost two men, Rifleman Yubraj Rai and Colour Sergeant Krishnabahadur Dura, in fighting in Afghanistan last November.
Gorkhas have fought alongside British soldiers for nearly 200 years - 200,000 fought in the world wars and 45,000 have died in action - and last year’s court ruling followed a long-running campaign to force Britain to grant all veterans settlement rights.